Deirdre McCloskey on Equality

“Making men and women all equal. That I take to be the gist of our political theory.” This rejoinder to rightwingers who delight in rank and privilege is due to the free-spirited Liberal heroine of Trollope’s Phineas Finn, Lady Glencora. It encapsulates the cardinal error of much of the left.

Joshua Monk, one of the novel’s Radicals, sees through it. “Equality is an ugly word…and frightens,” he says. The aim of the true Liberal should not be equality but “lifting up those below him.” It is to be achieved not by redistribution but by free trade and compulsory education and women’s rights.

And it came to pass. In the UK since 1800, or Italy since 1900, or Hong Kong since 1950, real income per head has increased by a factor of anywhere from 15 to 100, depending on how one allows for the improved quality of steel girders and plate glass, medicine and economics.

In relative terms, the poorest people in the developed economies and billions in the poor countries have been the biggest beneficiaries. The rich became richer, true. But the poor have gas heating, cars, smallpox vaccinations, indoor plumbing, cheap travel, rights for women, low child mortality, adequate nutrition, taller bodies, doubled life expectancy, schooling for their kids, newspapers, a vote, a shot at university and respect.

Never had anything similar happened, not in the glory of Greece or the grandeur of Rome, not in ancient Egypt or medieval China. What I call The Great Enrichment is the main fact and finding of economic history.

Yet you will have heard that our big problem is inequality, and that we must make men and women all equal. No, we should not—at least, not if we want to lift up the poor.

Ethically speaking, the true liberal should care only about whether the poorest among us are moving closer to having enough to live with dignity and to participate in a democracy. They are. Even in already rich countries, such as the UK and the US, the real income of the poor has recently risen, not stagnated—if, that is, income is correctly measured to include better healthcare, better working conditions, more years of education, longer retirements and, above all, the rising quality of goods. Admittedly, it is rising at a slower pace than in the 1950s; but that era of rising prosperity followed the wretched setbacks of the Great Depression and the war.

It matters ethically, of course, how the rich obtained their wealth—whether from stealing or from choosing the right womb (as the billionaire investor Warren Buffett puts it); or from voluntary exchanges for the cheap cement or the cheap air travel the now-rich had the good sense to provide the once-poor. We should prosecute theft and reintroduce heavy inheritance taxes. But we should not kill the goose that laid the golden eggs.

What does not matter ethically are the routine historical ups and downs of the Gini coefficient, a measure of inequality, or the excesses of the 1 per cent of the 1 per cent, of a sort one could have seen three centuries ago in Versailles. There are not enough really rich people. If we seized the assets of the 85 wealthiest people in the world to make a fund to give annually to the poorest half, it would raise their spending power by less than 4p a day.
All the foreign aid to Africa or South and Central America, for example, is dwarfed by the amount that nations in these areas would gain if the rich world abandoned tariffs and other protections for their agriculture industries. There are ways to help the poor—let the Great Enrichment proceed, as it has in China and India—but charity or expropriation are not the ways.

The Great Enrichment came from innovation, not from accumulating capital or exploiting the working class or lording it over the colonies. Capital had little to do with it, despite the unhappy fact that we call the system “capitalism.” Capital is necessary. But so is water, labour, oxygen and pencils. The path to prosperity involves betterment, not piling brick on brick.

Taxing the rich, or capital, does not help the poor. It can throw a spanner into the mightiest engine for lifting up those below us, arising from a new equality, not of material worth but of liberty and dignity. Gini coefficients are not what matter; the Great Enrichment is.

Why the fuck should we even have any inheritance taxes? Why shouldn’t I get to decide who has my money after I die? It’s my money. I’ve already been excessively taxed on it. If I want my spoiled brat kid to have it that’s none of your goddamned business.

According to that impeccable source Wikipedia the richest person in the world in 2014 is Bill Gates with a net worth of $76 b.
According to the same source in ~2007 dollars, Andrew Carnegie’s estimated worth was up to $297.8b, Cornelius Vanderbilt $178.4 b, John D. Rockefeller $663.4 b and so on.

Talk about spoiling a good thing. Inheritance taxes ultimately means forcing people to sell off things like their family home and heirlooms, with meaning and stories attached rather than being able to leave them to the people they love. That’s not an economic policy, its spite.

MartinG, The wealth my offspring will inherit eventually isn’t income for them. It’s the reward for putting up with the mad antics of their mum & dad all these years, plus some compensation for the effort. You can’t tax people for that.

MartinG, The wealth my offspring will inherit eventually isn’t income for them. It’s the reward for putting up with the mad antics of their mum & dad all these years, plus some compensation for the effort. You can’t tax people for that.

If you are paying (rewarding) them for “putting up with the mad antics of their mum & dad” then the benefit would become income in their hands and would need to be declared annually on their tax return.

You are not allowed to accumulate payment for any service that they are providing without declaring it to the tax office. This of course would be a nightmare in that you would have allocate proportionality to each dependant of any fixed asset’s for capital gain calculation. All bonds and shares etc would be treated in the same way but calculated at the time of accumulation.

An inheritance tax avoids this since it assumes that the accumulated wealth was for your own benefit.

Fortunately we don’t have death duties or an inheritance tax in Australia.

Martin, you’re singing from a Ross Gittins style songbook. For many of us, not having accumulated a massive amount of super or a property portfolio during forty odd years of hard work, including trying to be a successful small business person, some fairly modest inheritances are all that’s standing between us and the pension.
Your marginal rate approach, if applied to an inheritance of say 300k in one year (maybe the one and only) would take a large chunk out of it. As others have said above, that money or value was only achieved by our parent or relative despite being taxed through their lives as well.
We’ll avoid having to go on the pension with a bit of luck, thereby saving the taxpayer.

On the broader question of da inequality, the media generally are obsessed by it. From the abovementioned Ross gittins to the ABC, and yes, the big version of it, the BBC. After the emergence of solid evidence that the Ferguson shooting was as a result of thuggish behaviour on the partof the deceased, the BBC still runs the line “but what are we going to do about da inequality?”

It appears that the gang was doin their bit for da inequality by robbing a store. The BBC does its bit by selectively championing thugs from Ferguson to Gaza.

1. Parents work hard and save all their lives, building up a sizable super nest egg. Unfortunately they kick the bucket early in their retirement; their children inherit the majority of the super.

2. Parents work hard and save all their lives, building up a sizable super nest egg. They enjoy their hard-earned retirement and spending time with their children, grandchildren, and towards the end they are lucky enough to meet their great children. Because they saved hard they are able to do some nice things for their family through their retirement, like occasionally shouting the family to a nice dinner, or pitching in with the grandkids school fees. They need to go into a nursing home for the last few years, which requires a number of their assets to be sold to be financed, including their home. So when they die, they don’t leave much: just some nice furniture, jewelry and a lifetime of memories for their loved ones

These two scenarios play out all the time around the country, thankfully more the latter than the former. But the inheritance tax boosters only consider the children in the first scenario to be the ‘lucky’ recipients of some unearned windfall.

As “innocuous” as Hockey’s comment was claimed about poor folks driving cars …
A better comment would have been the concern of the LNP to make it fair so all people could afford to drive cars.
Not raise the cost of fossil fuels.
But, we have conservatives in name only … doomsday global warming threatens, trees must be planted, billion$ wasted to appease who?

The inheritor has done nothing to earn the income and therefore should be taxed at his/her marginal tax rate.

That has to be the silliest argument I have heard in a long time.

First of all it presumes that somehow taxing wealth is something that it is automatic; i.e. that there is some part of everybody’s cash that just belongs to the government because it’s the government. Second of all, money received in an inheritance is not income in ordinary concepts, and would have to be deemed so by any taxing statute. Thirdly, a lot of people don’t inherit cash but goods and real property. To pay the tax they would have to sell that property.

There is nothing ethical in that.

Deidre’s ‘s argument loses some of its power when she uses the term ‘ethical,’ for that is the weasel word so beloved by lefties when they can’t quite find a justification for their argument. they seem to have real trouble understnding the difference between morality and ethics.

Martin, you’re singing from a Ross Gittins style songbook. For many of us, not having accumulated a massive amount of super or a property portfolio during forty odd years of hard work, including trying to be a successful small business person, some fairly modest inheritances are all that’s standing between us and the pension.

As was the case with me, but my parents estate was subject to death duties. Lets get things straight, my real view is the best form of tax is no tax at all.

Your marginal rate approach, if applied to an inheritance of say 300k in one year (maybe the one and only) would take a large chunk out of it. As others have said above, that money or value was only achieved by our parent or relative despite being taxed through their lives as well.

Yes, I should have expressed myself better. I was not advocating a windfall tax, where the tax is payable In one year. A tax deferred arrangement would be a must under any inheritance tax system. For instance the inheritance could be placed in an income producing trust and drawn down over a period of 10 years.

Only the draw down would be taxable. It’s only in principle unearned income but in reality it is not, because the benefactor may have arranged their affairs mindful that their children may need help in their wealth building for their own retirement. A superannuation arrangement would also work.

We’ll avoid having to go on the pension with a bit of luck, thereby saving the taxpayer.

Again I stress, the best inheritance tax is no tax at all, but if a deceased estate is to be taxed I believe it is best done in the hands of the benefactor.

These two scenarios play out all the time around the country, thankfully more the latter than the former. But the inheritance tax boosters only consider the children in the first scenario to be the ‘lucky’ recipients of some unearned windfall.

I am not an inheritance tax booster, My input was purely intellectually hypothetical.
I am opposed to deceased estate taxation. What I am also against is people who are asset rich being able to draw on welfare in the form of a pension.

You take what you get in life and try to make the best of it. In a democracy with a high standard of living that is not too hard a row to hoe. Social stability is a great thing, and a great thing to keep in mind. No-one wants to feel ripped off, with inheritance and other taxes; conversely, no-one wants to feel that life is a constant and bitter struggle just to stay fed and housed. Da Hairy Ape and I have never inherited a cent, and don’t look like doing so. His relatively wealthy father re-married, died, and the new wife will live for a long time and will live well on his money as he left it all to her; we don’t begrudge it to her, as they were happy for fifteen years together (although I think his father could have thought a little of his sons). My parents had nothing at all and left nothing, and I made my own education. I did well enough even before I married Da Hairy Ape. Da Hairy Ape has been very successful and we want for nothing; he generously shares with the two children from my first marriage. They will inherit, as will our two children, but we also spend a lot of it now; on them and on travel and housing. He is also generous to charities and to my extended family, who are needy.

I think inheritance should have the following principles:

a. family first, with a review of spouse takes all, perhaps on depending wealth and length of marriage
b. if very wealthy, then leave a chosen percentage to charities of one’s choice

If the government want to legislate anything, they should legislate sharing a percentage with charities of one’s choice, once wealth reaches a certain stage. There are already tax advantages in doing this prior to death. Such compulsion would cause the rise of scam charities, but would be nevertheless be usefully redistributive towards the social good in many cases. If it could be done without compulsion, but by moral suasion, so much the better.

Martin G – my post wasn’t specifically directed at you. Rather at the ‘fairness and equality crowd’ who think that the state is a more deserving inheritor than someone’s own children/grandchildren.

As a child I was fond of describing any outcome I didn’t personally like as ‘not fair’. My parents were very consistent in there response: ‘life is not fair, get over it,’ they’d say. Now that I’m older I know they ate right, and more than that – attempts to make the world ‘fair’ have resulted in some of the worst atrocities of all time.

When I see an adult going on about ‘fairness and equality’ I picture a child, thumping the ground and kicking their legs and completely ignorant of how the world actually works.

MartinG, may I put an argument to your position about “people who are asset rich being able to draw on welfare in the form of a pension”?

Bringing it from the abstract to the concrete, we have elderly next-door neighbours who bought their home for 2,000 quid 60-some years ago. It’s now valued at more than $2million, so they’re asset-rich, but being in their 80s, they’re on the pension. Should they sell their home to fund whatever is coming at them healthwise for the years they have left, thus taking the burden off the welfare and medical system. Or should they do as they’re doing, living as they wish to live with help from their kids and various neighbours in a familiar community, and then pass their own asset, bought and paid for after tax, on to the family that has supported them?

This is a conundrum that can’t be solved in mere dollars and cents to the satisfaction of either side of the argument. You might say, sell the home, move into a retirement place and pay 20% to the retirement home owner. I might say, stay where you are and save the 20% you didn’t need to give away in the first place.

It becomes more complicated when bigger amounts are involved, such as with the spouse and me. Hence financial structures that solve the problems of inheritance taxes and death duties, should any future Australian government be so deranged as to go down that road.

Putting your mind at rest, I am a self-funded retiree in my 50s, have private health insurance and zero debt. I wish I could say the same for the rest of Australia.

Bringing it from the abstract to the concrete, we have elderly next-door neighbours who bought their home for 2,000 quid 60-some years ago. It’s now valued at more than $2million, so they’re asset-rich, but being in their 80s, they’re on the pension. Should they sell their home to fund whatever is coming at them healthwise for the years they have left, thus taking the burden off the welfare and medical system.

They wouldn’t have to sell the house, it could be reverse mortgaged. This gives them an income far higher than the state pension. Even if they out live the equity on the property they can still live at the property and they then revert back to the state pension. As for health, they would still be eligible for health care.

Or should they do as they’re doing, living as they wish to live with help from their kids and various neighbours in a familiar community, and then pass their own asset, bought and paid for after tax, on to the family that has supported them?

I would hope their kids and neighbours are not helping them with an eye on what they can get out of it. Unless the couple have their own savings that they can draw down on then their income is welfare and is being paid by the taxpayer of the day.

The government doesn’t have a pool of funds it has set aside for future pensions, your elderly couple have never contributed to their own pension. It’s a dirty secret that governments have always funded pensions out of current receipts. The tax you pay now are for the services you receive now and other peoples wealthfare.

and then pass their own asset, bought and paid for after tax, on to the family that has supported them?

Yes but the value of the assets they leave behind have now have been inflated at the cost of the current tax payers.

This is a conundrum that can’t be solved in mere dollars and cents to the satisfaction of either side of the argument. You might say, sell the home, move into a retirement place and pay 20% to the retirement home owner. I might say, stay where you are and save the 20% you didn’t need to give away in the first place.

I would not recommend moving into a retirement home if it can be at all avoided. Many people that do become desperately unhappy and many are set up to rip the estate off.

MartinG, you can’t reverse mortgage the entire value of a property, only a percentage up to about 65% depending on your age. After that, you have to sell it. And, don’t forget that your interest bill rises every month.

If the people Maree mentioned were ineligible for the pension, their living expenses would rise significantly. They would probably have to pay full land rates, full freight for health services and pharmaceuticals, as well as property maintenance, insurance etc. To have a reasonable lifestyle (e.g. running a modest car, buying a few Christmas presents for the grandkids, replacing appliances etc) they would probably have to draw down about $1,000 per week. The full cost of prescription drugs for people of that age can easily exceed $100 per week.

It is true that they could probably manage to do this, but at the cost of cannibalising everything they have worked for. The fact is, if they live in Sydney, owning a house bought decades ago which is now worth $2m is not an indicator of wealth. It is quite likely that they have no other assets at all. If they sell the house and move to one worth $1m, they will be ineligible for the pension because they have too much cash. If one or both of them has serious medical issues, medical bills and pharmaceuticals plus living costs could swallow that in a few years.

The problem with assumptions about oldies living in valuable homes is that they usually in no other way have any capacity to produce income. Unlike typical self-funded retirees, they don’t own shares or investment properties or businesses. They are just workers who got lucky in the property market. The number of people at this supposedly free market oriented site who want to punish them for that never ceases to amaze me. And, the reality is, most of them will have to sell anyway eventually, because the rates (even with concessions), insurance and all the rest are beyond the means of pensioners anyway.

They are just workers who got lucky in the property market. The number of people at this supposedly free market oriented site who want to punish them for that never ceases to amaze me. And, the reality is, most of them will have to sell anyway eventually, because the rates (even with concessions), insurance and all the rest are beyond the means of pensioners anyway.

I can’t be bothered having a conversation with someone who would make such a crass comment. They are already talking about lifting the retirement age to 70. Those who have no assets will be living in poverty, because they will have no chance of getting a job. The government knows that many won’t live to that age and so will never have to pay them a pension. Those singles who die after accumulating only the compulsory superannuation will very likely have no dependants so their super will go directly into consolidated revenue.

The retirement age needs to be pulling back to 65, and the only way you can do that is by releasing the non productive assets of those who are drawing the pension while they are asset rich.

Why should tax payers subsidise the windfall profits of the bedside vultures?